As internships evolve beyond coffee runs and photocopying, the legal landscape around paying interns has become more complex. U.S. employers must understand the Fair Labor Standards Act (FLSA) and the Department of Labor’s (DOL) guidelines to determine when interns must be paid—and when they don’t have to be.
Also Read: Ensuring Fair Pay in an Automated World: Key Considerations
Learn about how paying interns can be made easy with this blog.
Paying interns is not just about compensation—it’s about compliance and building a responsible employer brand. Understanding the legal framework helps you create programs that are fair, competitive, and risk-free.
Unpaid vs. Paid Internships: What’s the Legal Standard?
The key to paying interns lawfully lies in understanding the DOL’s “primary beneficiary test.” This test evaluates who benefits most from the internship—the intern or the employer. If the intern is the primary beneficiary (e.g., receiving hands-on training or academic credit), the position may be unpaid.
However, if the employer reaps the bulk of the benefit (e.g., the intern performs essential work), then the intern likely qualifies as an employee and must be paid at least minimum wage and overtime under FLSA.
The 7-Factor “Primary Beneficiary” Test
The DOL uses a flexible seven-factor test to assess internships. These factors include:
- The extent of training and educational benefit
- Whether the internship is tied to a school program
- The alignment of the internship with academic commitments
- The limited duration of the internship
- Whether the intern’s work complements or displaces paid employees
- The expectation of compensation
- Whether there is a clear understanding of the unpaid nature of the role
If most of these factors lean toward the intern benefiting more than the employer, paying interns may not be required. Still, employers should document their justification to avoid compliance issues.
Risks of Misclassifying Interns
Failing to follow wage laws when paying interns can lead to serious consequences, including lawsuits, back wages, and penalties. Recent cases have highlighted companies being held liable for improperly unpaid internships. Even if an intern is enthusiastic about working for free, that doesn’t override legal obligations.
Best Practices for Employers
To avoid risk, consider paying interns unless you have strong legal grounds not to. Paid internships not only reduce legal exposure but also broaden your talent pool and promote diversity and equity. Additionally, clear internship agreements, structured learning goals, and HR oversight ensure your program meets legal and ethical standards.
